Tuesday, July 10, 2012

Writing at the Daily Beast, Michael Tomasky urges Obama to "go on the offensive" on taxes (i.e. class warfare) because the facts are on his side, assuming you frame the "facts" just right.

First, let’s have a few facts, because they help explain why continuing tax cuts for middle-income people is easier to justify. You can find the rates for 2012 here. You can find the rates for all of American history, all the way back to 1913, when the federal income tax was introduced, up to 2011, here. A person (a single filer) who was making $40,000 in 2000, the last year of the Clinton rates, and who might be making $50,000 now, has experienced very little tax savings. She’s actually paying more taxes in 2012, by a few hundred bucks, but that’s partly because her income went up. The percentage of income she’s sending to the IRS has decreased a bit.

Look at the convoluted, circuitous manner in which we're told about this taxpayer (conveniently, a woman, just like Julia.) We don't know her overall tax rate or the total amount she paid in taxes. Instead, we're merely told that she's paying a little less to the IRS. As it turns out, Julia is paying about $8500 on $50,000 income or about a 17% effective tax rate.

Now imagine someone who made $250,000 then and $350,000 this year. He pays five different rates, and I won’t go through them all, but he paid a top rate of 39.6 percent on his last $106,000 earned in 2000. In 2012, though, he’s paying just 33 percent on every dollar from about $178,000 to $350,000. He’s making out awfully well—paying roughly $12,000 less per year than he would be at the old rates. A person making $1 million is paying more than $50,000 less.

Once again, we're not allowed to know the effective tax rate on Mr. $350K (it's 28.6%) or his total tax bite ($100K) - instead we're supposed to gnash our teeth over the twelve-grand he saved under the current rates. So Mr. Rich makes seven-times what Julia makes but his tax bite is almost twelve-times higher. He pays a higher marginal tax rate, pays more total taxes, and he and his terrible cronies pay 37% of all total federal taxes.

Oh but if we could only get that filthy lucre into middle-class hands, they would spend it wonderfully.

First, in moral terms, the current rate structure is grossly inequitable.

How so? Tomasky doesn't deign to explain.

But second and more important, this is about stimulating the economy. The middle-income woman is almost certainly going to take her tax savings and spend it. She probably doesn’t have the luxury of saving or investing it.

We know this...how? This wasn't the case when rebate checks were showered on Americans.

The $350,000 earner? Well, maybe he’ll spend it on a more tricked-out and suped-up Lexus.

A $12,000 Lexus?

Or maybe he won’t. The $1 million earner? He’ll almost certainly sock away most of that $50,000, unless this happens to be yacht year.

A Lexus and a yacht? Why I think we've tipped into class warfare. Here's a little history for that yacht-hater Tomasky: back in 1990 Congress passed a "luxury tax" to hit Uncle Moneybags. "Fairness" and all. Here's what happened: the luxury tax income disappeared but unemployment obligations shot up:

According to a study done for the Joint Economic Committee, the tax destroyed 330 jobs in jewelry manufacturing, 1,470 in the aircraft industry and 7,600 in the boating industry. The job losses cost the government a total of $24.2 million in unemployment benefits and lost income tax revenues. So the net effect of the taxes was a loss of $7.6 million in fiscal 1991, which means the government projection was off by $38.6 million.

But then maybe that millionaire will sock away his money, providing more liquidity to the private market and depriving Washington of money they'll just blow on electric cars built in Finland. Why should it matter to me how a heart surgeon spends the money he earned? Obama's only strategy now is to divide one American against his brother and hope that the split of takers over makers will drag him over the finish line.

1 comment:

Anonymous
said...

The guy inadvertently makes the case for a flat tax - so the middle class isn't inflated into higher tax brackets with no increase in actual earnings. At the least, Congress should index all the tax brackets to inflation - but they won't.

Either Tomasky completely forgot about the AMT or Mr. $350K has a better accountant than me - I make much less and pay over 30%.